Our weekly economic update is below, along with an invitation to a new event: Empowering Solutions to Age with Dignity and Choice. Also included in this week’s blog post is your link to the latest 10-Minute Take podcast, your RSVP reminder for our upcoming Cyber Security seminar, and our community corner.
It’s been a tale of two stories the past few weeks. On the one hand, concerning coronavirus trends across key hotspots and new localized outbreaks in some countries. On the other hand, resilient markets which appear to believe that, for now, the worst of the economic damage may be behind us, elevated infections don’t pose as severe a health care challenge as they did months ago, and that solutions in the form of vaccines may be on the horizon. This week also marked the kickoff to the second quarter earnings season. We share some of our key thoughts and takeaways below.
Coronavirus update
This week, the number of new daily cases in the U.S. averaged well over 60,000. For context, this figure was below 30,000 about a month ago. Trends remain most concerning in large states such as Florida, Texas, and California. The latter moved to shut down most indoor operations of establishments such as restaurants, bars, and gyms. This adds to a growing list of states that have halted their reopening plans. Not surprisingly, some of the high frequency data in the U.S., such as mobility trends, credit card spending, and restaurant bookings, suggest that activity has begun to moderate following the initial recovery seen last month. Furthermore, the strong initial rebound we saw in the U.S. labour market may be waning as the number of people filing weekly jobless claims remains stubbornly elevated.
Meanwhile, virus trends in Latin America also remain a concern, with Mexico reporting near record number of daily infections and deaths this week. India stands out as another country struggling to contain the virus, with new daily cases well north of 25,000. Just this week, it revisited the idea of lockdowns across parts of the country, only weeks after loosening up restrictions to alleviate economic pressure. Others are grappling with outbreaks, such as Japan, Hong Kong, and Australia, and they are all taking renewed action to contain the spread.
There was encouraging news this week on the vaccine front. The New England Journal of Medicine published detailed results of a U.S.-based Phase I vaccine trial. To be clear, early positive results from the trial were released in May, and understandably fueled a positive market response back then. The paper this week confirmed the vaccine demonstrated the ability to safely help all 45 trial participants produce antibodies to protect against the virus. It is expected to move to a Phase 3 trial by the end of this month. There is more to come next week as a U.K.-based medical journal is expected to provide positive results of a Phase I trial of another vaccine. This serves as a reminder that we may one day be able to better protect people and potentially even eradicate the virus.
A few words on Canada
In Canada, trends remain much more comforting. Provincial and local governments have moved forward with reopening plans. One of the major dilemmas now facing government officials is on the school front. Some provinces have already committed to a full return in the fall, at least for elementary schools, while others are exploring options that include a hybrid approach of in-class, staggered, part-time, and virtual class sessions. These are difficult and complex decisions that have implications for millions of families, parents, and youth across the country. Moreover, they may have major repercussions on productivity, the labour force, and the overall trajectory of our country’s economy in the second half of this year and beyond. Our economy can use all the help it can get. This week, the new Bank of Canada Governor indicated that it may take two years to reach the level of economic output we saw in 2019.
On a separate note, the regulator for the Canadian banking industry announced that it would permit the banks to use a new and lower cost structure to raise capital relative to alternatives used in the past. This fueled a rally in preferred shares, a small but important part of the Canadian fixed income market. This decision may continue to act as a positive tailwind for this part of the market given the potential for less issuance going forward.
The earnings season
This week marked the start of a busy period for company earnings releases, with U.S. banks reporting their quarterly results. The second quarter period includes the month of April, when lockdowns were in full force, through until the end of June, when restrictions started to ease and activity recover. Our primary takeaway is that the banks continue to expect credit losses to rise in the future, particularly once some of the government aid programs expire. In response, most banks added meaningfully to the large reserves they already set aside last quarter. These reserves, or provisions as they are often called, can be thought of as a cushion of sorts. The results were relatively in-line with investor expectations and as a result, the stocks behaved reasonably well. The Canadian banks don’t report their results any time soon but we suspect they too will be conservative and increase their provisions in anticipation of future credit challenges.
We look forward to hearing from more companies and management teams over the next month, though we suspect few will have the clarity investors are seeking given that the path of the virus and the economy remain uncertain.
| Elinesky Schuett Speaker Series
Don’t forget to RSVP! Cyber Security and You! July 23, 2020 - 1:00 p.m. - 2:00 p.m. We hope that you can join us for our second online event in the Elinesky Schuett Speaker Series, Cyber Security and You. We are pleased to welcome two experts from RBC Royal Bank that will be sharing information about how to stay safe online! If you have already sent in your RSVP, you will receive your Guest speakers David Zamler Your host Kindly RSVP by July 21 by clicking on the button below.
Have a question for Mark or David?
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10-Minute Take
There is a new 10-Minute Take podcast available on our website.
U.S. oil demand sputters as lockdowns tighten
Four months into the COVID pandemic and some Americans have hit lockdown fatigue, if traffic data is any indication. Take Las Vegas, which has seen flight activity increase steadily over the last six weeks. Or Houston, where traffic was up and down leading into the 4th of July holiday. Contrast this with Europe and China, which have emerged from lockdowns and are back to near normal activity. How will mobility patterns shift as U.S. re-openings continue to stop and start? And how will this erratic demand affect oil prices? Michael Tran, RBC Capital Markets’ Global Energy Strategist, shares his insights from real-time traffic data during the pandemic.
You can listen to this 10-Minute Take podcast online now: The 10-Minute Take.
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Please join us for Empowering Solutions to Age with Dignity and Choice A discussion on the health and financial challenges faced by older Canadians Tuesday, July 28, 2020 1:00 p.m. ET Based on the strong interest and feedback from the attendees at our first event on June 15th – Facing Canada’s “uncomfortable truth”: The future of long-term care in Canada – we are delighted to invite you to a follow-up discussion featuring Leanne Kaufman, President and CEO of RBC Royal Trust, and Michael Nicin, Executive Director of the National Institute on Ageing at Ryerson University (NIA). RBC Wealth Management and RBC Royal Trust recently announced a strategic partnership with the NIA, a think-tank focused on researching and developing healthcare, financial security and social well-being policy solutions for Canada’s ageing population. During this approximately 45-minute webcast, Leanne and Michael will discuss:
The discussion will be followed by a live Q&A session.
Host Leanne Kaufman, President and CEO, RBC Royal Trust Leanne is responsible for the strategy and overall management of the estate and trust business, which provides wealth protection and transfer solutions across generations to high-net-worth Canadian families.
Special Guest: Michael Nicin, Executive Director, National Institute on Ageing Michael previously served as the Chief of Staff and Senior Policy Advisor to the Ontario Minister of Seniors Affairs, leading the design and launch of the provincial seniors strategy. Prior to that he was the Senior Policy Advisor to the Ontario Minister of Children and Youth Services.
To participate in this virtual event
Kindly RSVP by July 27, 2020.
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We are riding in the Tour de Guelph!
The annual Tour de Guelph community ride is officially underway, and next Tuesday our team will be hopping on their bikes, staying social distant, and helping to raise funds for this great cause. In addition to our ride, we are honoured to be involved with this extraordinary community event as the presenting sponsor of the 2020 Online Rider Photo Album.
Tour de Guelph supports the Guelph General Hospital and many other local charities through the Rotary Clubs of Guelph South and Guelph Trillium. This year, the Guelph General Hospital’s portion of the funds raised from the event will help to purchase new blood pressure monitors for the Day Surgery Unit.
Visit the Tour de Guelph website for more information.
Community Corner
Each week, we like to end our blog posts with a few good news stories from in and around the community. We hope that they brighten your day!
- Music lovers in Guelph can still have a Happy Hillside with upcoming free virtual festival
- Guelph man performs 100th and final Basement Session to help shake the COVID blues
- Community encouraged to ‘Tartan Up’ as Fergus Scottish Festival offers a weekend of online entertainment
- Pork donation provides protein for more than 200,000 meals
- Seniors’ Centre for Excellence offers tips to stay connected
As always, we are available to connect with you personally. Please don’t hesitate to contact us at 519-822-2024 or elineskyschuett@rbc.com.